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FSA bans broker for losing £85k of clients’ money

The Financial Services Authority has banned the director of a mortgage and general insurance firm from holding senior positions in the financial services industry after failing to comply with client money rules and the loss of £85,000 of customers’ money.

Matthew Sixsmith was the director of Manchester-based Bridgewater House UK, which dealt mainly in the sub-prime mortgage market, but also arranged life and critical illness cover.

When Bridgewater sold an insurance policy, it would charge its customers two years’ insurance premiums upfront, and then add this amount to the mortgage.

The firm agreed with its customers that it would hold this money and then pay the insurance premiums to insurers on their behalf.

But Sixsmith failed to separate his customers’ money from that of the firm, and used only one bank account under the name of Bridgewater to administer both his business payments and customers’ premium payments  

As a result, when Sixsmith’s firm ceased trading in September last year, approximately £85,000 of customers’ money was lost.

As Bridgewater’s sole director, it was also Sixsmith’s responsibility to ensure that any insurance premiums that customers had lodged with the firm were passed on to the insurers when payments became due.

But approximately 700 policies lapsed because, until May 2008, Sixsmith kept no record of when these payments should begin or end for each of the firm’s customers and therefore he failed to ensure that premiums were paid when due.

Sixsmith failed to take reasonable steps to ensure his business complied with the FSA’s regulations, and therefore breached Statement of Principle 7.

He also failed to ensure that adequate systems and controls were in place to safeguard the firm’s client money.

Margaret Cole, director of enforcement at the FSA, says: “Sixsmith was incompetent and his actions posed serious risks to customers who trusted him with their money and expected him to pass that money on to insurers.

“Individuals who look after client money must act in accordance with the rules. Where they fail to comply, we will not hesitate to take enforcement action against them.”

The FSA would have imposed a penalty of £25,000, but this would have placed Sixsmith in serious financial hardship. Sixsmith will not be able to hold senior positions in the financial services industry

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  • devils advocate 2 5th February 2010 at 12:38 pm

    Could not agree more, it is a well known fact that any financial hardships and subprime clients as a whole are more likely to cancel insurance premiums and keep luxeries such as sky tv instead, I still agree with up front payments in times where the clients are trying to rebuild stability and need protecting at the same time.
    well said devils advocate I look forward to still been able to hold my head up high when RDA proposals take place.

  • Charles Bunbury 5th February 2010 at 12:30 pm

    Can someone out there please tell me why Ifa, AR and mortgage brokers need to hold clients money when arranging a mortgage or life policy and who gave Matthew Sixsmith authority in the first place to hold clients money? Call your selves what you want but under the law of agency one is always acting on behalf of the principal when placing a provider’s product. One of our duties to clients having selected a product given their particular circumstances and status is preparing the offer in case insurance/assurance, for acceptance or rejection giving all material facts and mode of payments to the provider. I hope that I’m not the only one who thinks principal money should go direct and money due to me should come direct, it’s a case of KISS, keep it simple stupid for me, after all FSA.GOV.UK knows better.

  • Chris Birchall 5th February 2010 at 12:27 pm

    Absolutely amaziug the lengths some peple go to make money. But are the FSA real. They should be throwing the book at this company and is it not fraud?. Surely the money for premiums belonged to the clients, and what was going to happen after 2 years. I am forever doing things the right way but not making enough money. The good advisers are funding the bad guys with increased FSA and PII costs. Does it pay to be honest? I have been an adviser for 26 yrs without a blemish, does that count for anything ? does the FSA provide a No claims discount for good behaviour ? I think not. No wonder the public are wary of advisers when they hear of people like this. I am sick and tired of trying to make an honest living and reading stories about people like this. The FSA will never stop these people so they should let the legal proffession deal with wrong doing and Abolish the FSA and reduce the running costs and free us good advisers to get on with our jobs instead of bogged down in red tape terrified of the FSA moving the goal posts in 5 years.

  • Devils Advocate 5th February 2010 at 11:49 am

    Im not defending this guy at all,as he clearly wasn’t able to work out that he was placing these clients at risk by having their money in his bank account.Subsequently when he went pear shaped (as a lot have) their premiums were sucked down too.
    However.
    Interestingly I think that his model isnt so flawed as most of you would think initially, looking at it.
    1) At least he did the right thing by ensuring cleints were covered with life assurance for the two years ALL THINGS WORKING CORRECTLY OF COURSE
    2) He ensurred his business would not be wasting time,effort energy and finances by taking time to sell concept of paying the two years in front,and thus his business should not have been hit by clawback in those two years,and in a time of reccession,GUARANTEED (ok it went wrong) life assurance for two years,without a monthly cost,isnt bad proposition in a time of uncertaintey.
    3) His proposition of paying two years in advance is only a little worse that paying your years buildings insurance up front isnt it?
    4)HAD IT WENT RIGHT………his business model would have been stronger than most of ours,who probably are suffering clawback,not thru miss-selling premiums could not afford THEN,but by clients thru no fault of theirs our our losing jobs,stopping Life policies.
    Tragically this plays into hands of the FSA who would ban commissions,making clients “pay for the advice”
    HOW MANY OF HIS CUSTOMERS WOULD HAVE BEEN CUT OUT OF THE EQUATION?about 700 according to amount of policies that lapsed.Should these people have no financial advice? because it appears these are the people that need GOOD FINANCIAL ADVISE MOST…………………
    Theres good advisers,and bad advisers,theres good advisers going thru bad times,and doing things that normally they would not entertain due to market conditions.
    Once FSA stick the IFA community with the RDA proposals,lets see how many more of us go pear shaped.
    1% of my feels srry for this guy,he tried he failed,hes lost everything,if markets had of been different im sure story would not be same,or even found.

  • Dale Knight 5th February 2010 at 11:47 am

    Firms have done this for years to protect ASU income paid upfront on 5 year premium business. Its shocking and I am glad the FSA will ban these individuals from our industry and send a message out to those firms who are in it solely to make money and not to advise the clients. It is because of these firms we have the strict complaince we have today.
    I guess these individuals will have to find senior positons within the banking industry now as this is where they all seem to form………

  • James 5th February 2010 at 11:37 am

    Mike jennings: Ridiculous comments. I guess the clients were perhaps not savvy in matters financial, and GOD FORBID, they trused their IFA not to screw them over. Thats perhaps why, after all, they went to an IFA. If you go to a doctor, you trust what they tell you because they are they are the specialists in their field.

    I cannot believe there remains apologists for IFAs such as this – I hope you don’t do a pontious pilot act if you give bad advice?

  • Jan ONeill 5th February 2010 at 11:32 am

    It seems the FSA are a soft touch, as they would have imposed £25,000 as it would incur hardship to Mr Sixsmith, what happened to all that money? What about all the clients that thought they had cover in place and now find they have nothing and what would have happened if somone needed to claim on a policy, how would the FSA have approached that issue? There is no deterent to stop other advisers doing this when pleadig hardship stops you being finded? THe FSA is not hard enough on people breeching the rules and stopping unscrupulous advisers working from in the Industry!

  • Stephen Snell 5th February 2010 at 11:20 am

    I find this advisor’s actions totally unacceptable, and I would ask why the FSA did not act sooner, as already stated the IFA nust have done this to protect his clawback position, so that would put in question the affordability of the future premiums, and what about the interest being charged on the increase mortgage payments, over the term of the loan. At long last another poor IFA has be thrown out of the business, as for the £85,000 he must have put it in his pocket along with the insurance commissions, so his fine should have been at least 100k.

  • William Reid 5th February 2010 at 11:19 am

    To me, no blame should be atributed to clients, this guy without doubt was up to no good and the industry is well rid!

  • Chris Powell 5th February 2010 at 11:16 am

    As a regular reader of the letters I must say that intermediaries cannot have it both ways. There are a lot of letters stating that consumers should take expert advice before taking on financial products and put themselves in the ‘hands of the expert’. The client often pays for this priviledge so I don’t think it is odd that majority of them don’t think to question the advice they are given. A good salesman can persuade the ignorant that they are getting the best deal – the issue is the integrity of the salesman.

  • sw 5th February 2010 at 11:06 am

    does seem very strange that the FSA have not investigated why the customers were misled into paying 2 year’s premium upfront?

  • sw 5th February 2010 at 11:05 am

    does seem very strange that the FSA have not investigated why the customers were misled into paying 2 year’s premium upfront?

  • Mike Jennings 5th February 2010 at 10:52 am

    Whilst this is obviously a serious breach and Mr Sixsmith should have run things better, why on earth did all those clients think it was ok to pay 2 years premiums IN ADVANCE..! It seems rather obvious that this is very odd indeed but none of them thought to question this practice..? Clients need to take responsibility as well…

  • Greg Jenkins 5th February 2010 at 10:49 am

    I presume this setup was aimed to protect commision against claw back? I cant see how it was anything else – If the long term premiums were unaffordable the policies would all go off the books and the client would have no cover.

    Good riddance to bad rubbish with ‘advisors’ like this.

  • Greg Jenkins 5th February 2010 at 10:48 am

    I presume this setup was aimed to protect commision against claw back? I cant see how it was anything else – If the long term premiums were unaffordable the policies would all go off the books and the client would have no cover.

    Good riddance to bad rubbish with ‘advisors’ like this.